Homeowners' Association Boards: Rights and Duties

Homeowners' Association Boards: Rights and Duties

A homeowners' association (HOA) is a nonprofit corporation or unincorporated association the purpose of which is to manage a common interest real estate development. The HOA is comprised of owners of property in the development. The HOA elects members of a governing board to direct its activities. The board of directors has certain powers and duties. Directors also have individual duties, and they may incur liability if they breach those duties.

Organization

Homeowners' associations consist of all of the property owners in a real estate development which has common and individual interests. Typically, all property owners in the development are required to be members in the HOA. So, for example, all property owners in a planned residential development are members of its HOA.

HOAs are created under and regulated by state law. State laws usually require the first meeting of the HOA to be held within a certain amount of time after the first unit in a development is sold. For instance, the first meeting of the HOA may have to occur within six months after the closing of the sale of the first unit in the development. All property owners, including the developer, are invited to the meeting.

The first governing board of the HOA should be elected at the first meeting, and all positions should be filled. Since these elections will occur at the first meeting, information about the candidates should be circulated before the meeting.

Manner of Voting

State law may require a secret written ballot for board elections. State law may also require or permit voting to be cumulative, which means that each property owner may cast as many votes as he has for one or more but fewer than all of the members on the slate. An owner must give others notice that he intends to cumulate votes before the election takes place.

Unless the entire board is removed by vote of the owners, individual board members cannot be removed from office prior to the expiration of their terms if the votes cast against removal are sufficient to elect them.

The governing documents should require that so long as the majority of power resides in the developer, a certain percentage of board members should be elected by the non-developer owners.

After the first meeting, the board should meet, elect its officers and decide on how it will operate.

Board's Powers and Duties

The governing body (or board of directors) of the HOA is responsible for the management of all aspects of the association. It may delegate the management of its activities to other persons or businesses, such as a property management service, but it must retain ultimate control. The board's powers and duties normally include such things as:

Enforcing provisions of the declaration, articles and bylaws for the ownership and management of the development

Paying taxes and assessments that are, or could become, a lien on the common area

Contracting for insurance on behalf of the association

Contracting for goods or services for the common areas or for the association

Delegating its powers to any committees, officers or employees of the association authorized by the governing documents

Preparing budgets and financial statements for the association

Formulating rules of operation for the common areas and facilities

Conducting disciplinary proceedings against members of the association for violations of the rules

Liability of Directors

Members of the board of directors of an HOA that is a nonprofit corporation must perform their duties in good faith, in a manner that is in the best interest of the corporation, and with the care that a reasonably careful person would use under the circumstances. A director is entitled to rely on the advice of other officers, professional people, or HOA committees.

A director of an unincorporated association is not personally liable for the debts and obligations of the HOA unless the director:

Personally assumes responsibility for the debt

Executes the contract without disclosing that he or she is acting on behalf of the HOA or

Executes the contract without the authority to do so

The directors have a fiduciary duty to the members of the HOA and are liable for the breach of those duties. That means that they may not make decisions that benefit their own interests rather than those of the members.

Corporate directors cannot be held personally liable for the injuries caused by the corporation. Directors may be held liable if their own conduct causes injury. In some HOA disputes, volunteer directors or officers of HOAs may not be held personally liable in excess of minimum insurance limits set by law .

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